ESPPs: Rules

Fundamentals Of Employee Stock Purchase Plans (Part 2): Design Limitations And Enrollment Procedures

Alisa Baker
Part 1 looked at the basic structural elements and terms of employee stock purchase plans (ESPPs). Part 2 considers more advanced design concepts, including tax code limits and enrollment rules.

ESPP Choices: Flip Or Hold? (Part 1)

Timothy A. Farmer and Gregory G. Geisler
NEW! After you decide to participate in your company's ESPP, your next decision is whether to sell the stock soon after purchase or to hold it (and for how long). This article series examines different ways to participate in ESPPs according to relative risk tolerance, timeframe, and needs for money.

ESPPs And Your Financial Planning (Part 1)

Bruce Brumberg
Employee stock purchase plans (ESPPs) are popular and prevalent at most public companies. However, the structure of these plans is changing. These modifications may affect your decision to participate in your ESPP and its place in your financial planning.

Return to top of this page

How much will I pay when I buy stock in the employee stock purchase plan?

This depends on the structure of your plan and whether there is a discount and a lookback feature for the purchase price...

Will the price always be discounted from the fair market value of the stock?

Not necessarily, as it depends on how your ESPP is structured...

UPDATED! Who is eligible to participate in the plan?

In general, all employees at your company (or its designated subsidiaries or parent company) are eligible to participate. You need to be...

NEW! What are the most common eligibility requirements for ESPPs?

In its 2006 survey of companies with global stock plans in many countries, the National Association of Stock Plan Professionals asked companies about the eligibility requirements they apply to their ESPPs...

Is there a minimum age for participation in my company's ESPP?

Technically, no, if you go by the wording of the tax code for qualified ESPPs under Section 423. For nonqualified ESPPs, companies can...

What is the maximum earnings amount or percentage that I can have withheld to purchase shares under the plan? What is the minimum?

ESPP after-tax contribution limits vary by company requirements and are also subject to...

How do I join or enroll in an employee stock purchase plan?

Procedures, rules, eligibility, and contribution amounts vary from company to company...

For what period does my enrollment continue to be effective?

After you submit a subscription agreement, deductions will be made continually until...

What is an "offering date" or "enrollment date"?

The enrollment date is usually the first day of...

What is a "grant date" in an ESPP?

The grant date is usually the first day of the offering period...

What is an "offering period" or "enrollment period"?

During an offering period payroll deductions are accumulated. Shares are typically purchased under the plan at the end of the offering period...

What is the longest the offering period can be?

The maximum ESPP "option" term (i.e., offering period) is 27 months for plans with a lookback feature but...

What is a "purchase period"?

Some companies interchangeably use the terms "offering period" and "purchase period" when these are the same length (e.g., six months). Other companies have...

What is the "exercise or purchase date"?

This is the last day of the offering (or purchase) period...

When are my shares purchased?

Payroll contributions that accumulate during the offering period...

NEW! What is a "lookback"?

A lookback is a provision in certain tax-qualified ESPPs. A lookback provision bases the purchase price not on the stock price at the time of purchase but, rather, on the...

If I elect to participate in the plan, can I withdraw at any time?

Generally, yes. Under most ESPPs, participants can withdraw from the plan at any time before the...

If I withdraw from the plan, how soon can I resume participation?

Generally, participants who withdraw from the plan...

Can I stop deductions for a few pay periods and then start again?

Not usually. Once you stop deductions...

Can I reduce or increase the percentage of my payroll deductions?

Yes, usually with a deadline for when the change must be made within each purchase period or quarter. ESPPs generally permit participants to...

Can I roll unused ESPP funds into the next purchase period?

This depends on the reason for the unused funds from your payroll deductions...

Can I begin my participation after an offering period has begun?

It depends upon the provisions of your company's plan. With some plans that use a...

How do you calculate the $25,000 annual purchase limit?

Internal Revenue Code Section 423(b) imposes a $25,000 annual purchase limit on ESPP participants...

How does the $25,000 calculation work when the offering period spans more than one year?

Where an offering period spans more than one calendar year (with multiple six-month purchase periods)...

Once I begin participation, how can I check the status of my account?

You'll receive a periodic statement...

Can I contribute additional amounts if I want to buy additional shares of stock?

Some companies may allow this, but...

Are there any restrictions on how much stock I can sell at once?

No, unless you are deemed to be an "affiliate" of your company or...

Return to top of page